A Store Closing That Hurts

Mountain Gear in Spokane is closing.  If you needed technical gear, that was THE place to go.  Now it's gone.  Roskelley and I have had disagreements over a few things, notably the Oregon Episcopal School disaster on Mt. Hood, but we are of one mind here:  The world is about to be a lesser place.

More Vacancies

And once again I am left scratching my head over local real estate management practices.  First, though, a moment of silence for the downtown Baskin-Robbins.  It's closed, and it sports a fatuous sign inviting you to the Sugarhouse location, a wholly useless alternative for anyone downtown.  All that's left for ice cream downtown is chi-chi shops with such high fat content your arteries clog just walking by and inhaling.

Anyway.  Also closed now are all but one of the Firestone service centers in the valley.  Apparently, they couldn't agree on a new master lease.  I imagine Bridgestone (Firestone's parent) was driving a pretty hard bargain, and I imagine the landlord did not want taken advantage of, but now the landlord is stuck with a bunch of vacant properties and no revenue stream to cover the expenses.  Not a good business model.  Apparently Burt Bros. is expanding into a few of them, but don't expect me to darken their door any time soon, given that they borked two of my cars on three separate occasions.

At least the landlord doesn't have to worry about a pile of similar buildings being slapped up in competition.  The hot money is now in multi-family residential.  Man, I would like to be able to follow the tax and accounting tricks that make chronic overbuilding make sense.  There must be something there.  All I know is that we have medium-rise condos and apartments popping up like mushrooms on the Olympic Peninsula.  And don't think they're taking advantage of affordable housing programs.  A $400,000 condo or $2,000/month apartment isn't affordable housing.  Makes you wonder if there are enough people who can afford all this new space.  Probably aren't.  In which case, here comes the next bubble, everyone get ready for a big POP!

Vacancy Rates

Recently saw the Q2 commercial vacancy rates for Salt Lake County, broken down as residential, office, retail, manufacturing, and warehouse.  It looked like a very rosy picture, with low vacancy rates all around.  Personally, I think they smell.  Like mackerel in the moonlight, they shine and stink.  Manufacturing and warehouse are low because they're being converted into the other areas and aren't being replaced.  Multifamily residential is low because people can't afford to buy.  As for office, there are thousands of square feet that are leased but are currently unoccupied (ostensibly because the lessee needs room for expansion, but we'll see how much of that happens) or are being used for on-site storage.  As for the retail numbers, someone is lying.  They pass neither the eyeball test nor the smell test.  Drive around the valley and look at the empty space.  Doesn't matter what kind of retail it is, the vacancy rates are high.  Anybody who thinks otherwise is living in a cave.  It's like just about every other bit of news about our "booming" economy: It only works by being highly selective with the data and then not examining the analysis very much.

So How Fragile IS the Economy?

Macy's in Holladay is finally closing.  Congratulations, Holladay, you've finished the job of turning a regional mall into a cow pasture.  For those of you keeping score, Macy's is also closing the Layton Hills store and the stores at the Three Rivers Mall in Kelso and the Everett Mall.  Sixty-eight stores, over 10,000 jobs.  Lowe's is chopping 2,400 full-time employees in effort to cut costs by using more part-time workers, in the further Walmartification of the US job market.  The Limited has filed Chapter 11, but it isn't reorganizing, it's liquidating.  American Apparel is gone, along with its 110 stores.  Albertsons is shutting down stores all over the territory.  Sears is closing the Vernal, Layton, and Tacoma K-Marts and the Alderwood Mall Sears (I'm waiting for the K-Mart next to Ivy Place to go.).  And in local tech news, Endurance International Group, which went public in 2013 and is still trading below the IPO price, is closing its Bluehost business in Orem (I wonder if Governor Available is going to mention that while bragging about all the jobs he's brought in.).

These aren't just lost jobs.  They're a sign that people aren't buying because they can't buy.  And as more people lose their jobs, more people can't buy.  That's called "spinning in."

So, Is Utah a Developing Nation?

Not an idle question.  The latest McKinsey Quarterly links to one of their old papers on the "informal" economy, i.e. business that's run under the table.  They note that the proliferation of an informal economy can be detrimental to the economy as a whole for a variety of reasons, lost tax revenues, disrespect for laws, irregular wage payments, avoidance of licensing and regulatory compliance, illegal employment practices, worker safety, product defects, and undercutting legitimate businesses being among them.


They also note a number of indications of an "informal" business: underreporting of employment, avoidance of taxes, ignoring product quality and safety regulations, IP infringement, failing to register as a legal entity, etc.  How many of these are an every-day occurrence here?  All of them.  How many people do I get in my office who are "behind on their taxes" because their bosses list them as "1099 employees?"  There's no such thing.  Either you're actually an independent contractor, or your boss is a cheap sleaze who's shifting his tax burdens to you.  And then there are the businesses that send me brochures, and when I ask them where they got the photos and text, they tell me they just pulled them off the Internet.  Oh yes, that's a plan, commercially using other peoples' property without their permission.  And when I ask for a license, they hand me something in some other business's name.  So what's your relationship to this business?  "Oh, he just lets me use his license."  Uh, wrong answer, and it's a crime.  Not surprising, though, given that they typically haven't met any of the requirements for doing business, right down to registering the DBA they're operating under.

Every time I take the bench in small claims court, I end up having to admonish at least one small business owner that he/she is in fact in business and needs to get the paperwork straight, including licenses and contracts.  Happened again last night.  Folks, if you're in business, you're self-employed, and being self-employed is fundamentally different from being employed.  It means you're ultimately responsible for the paperwork, and if you don't keep it straight, sooner or later you'll wake up wondering what fell on you.  And when that happens, and you come to me to straighten it all out, don't start whining about how unfair everything is.  My kids know better than that.

Of Gold Sacks and Garbage

So Goldman Sachs (Gold Sacks to those of us who have watched its operations with ever-increasing horror) is finally getting spanked by the SEC. GS created and marketed a junk-stuffed synthetic CDO at the request of and with the advice of hedge funder John Paulson. No legal problem there. GS disclosed to the CDO buyers that Paulson was investing in the CDO. No legal problem there. Except that GS left out these teeny-tiny details: Paulson was betting against the CDO, he had picked the CDO content so he could bet against it, and GS sold him his bet. Oops. Hence the SEC action.

What happens now? That depends to a great extent on GS. Remember that GS is a publicly traded company, so it is required to make certain disclosures, and its disclosures (required or not) are heavily regulated. And for the last week, GS has been digging itself deeper with every disclosure. GS apparently received a Wells notice (the tap on the shoulder the SEC gives a company before it files an enforcement action), and the general counsel determined that wasn't a material event requiring disclosure (Translation: We insiders know the stock is about to tank, and we want an opportunity to dump our shares before the public finds out. That's called insider trading kids. I wish I made his salary for giving that kind of advice.). Then GS issued a statement claiming the SEC complaint had no basis in law or fact, a statement that will be classified as a material misstatement in a disclosure should there prove to actually be a basis to the complaint (and it will so prove). And GS has kept swinging from there. The stupid, it burns.

GS could start getting smart and try to resolve this thing, which everyone expects it to do. The question there is whether the SEC is ready to deal or if it wants a pound of flesh and doesn't care about Portia's collateral damage arguments. GS may find itself in a box and try to get out using the nuclear option of showing the SEC just how deep the rabbit hole goes, disclosing other deals and other players. And then the fun will spread, because the markets will not be able to ignore a mess like that the way they've ignored economic reality the last year.

Of course there's a "Happy Happy Joy Joy" crowd that thinks nothing will come of this, it's just political, GS didn't do anything wrong. Fareed Zakaria, CNN's alleged financial genius talking head, says this morning that the SEC case is weak because it's based on the CDO going bad, which just happens and isn't illegal. Excuse me Fareed, but you're exactly wrong. The complaint is based on material nondisclosure, and you just showed the world you've been drinking deeply from Alan Greenspan's "No One Could Have Known" Kool-Aid jug. That sound you hear is whatever respect I had for Zakaria running over the hill with its hair on fire.

So what's next? Well, the markets are going to have to stop their exuberant climb, which was based on nothing anyway. And the Too Big To Fails will find that failure is an option because their revenue is based on destructive practices that need terminated. These changes are necessary if our economy is to survive, and they will be painful. Just not so much to those of us who are mere mortals and do not live in such rarefied air. Let's face it, how many of us have seen any return from the market run-up this last year? How many of us get financing from the likes of GS? Not that many. Jobs are scarce and shaky. Our customers are scared and aren't buying. The little banks that finance us and our customers are still failing at a record pace (and the Bigs are taking the rake, so any clampdown on them is a plus for us), and financing will only get tighter as an even bigger tsunami of ARMs resets over the next two years (which will also result in more foreclosures and more real estate deflation). We're in a mess that will take years to sort out, and what comes out the end will be a completely different animal than what went in.

Just do yourselves a favor. Introduce yourselves to your neighbors and local businesses. They're the people you're going to be depending on for the next several years.